Phoenix Insights, part of savings and investment provider provider Phoenix, said reforms are needed to help people stay in work and to support those who have to leave the workforce.

It warned that nearly 7m people will be impacted if the State Pension increase to age 68 is brought forward to 2037, as recommended by the Cridland review.

It has conducted a year-long study working with the public to understand their views and expectations of the State Pension system ahead of the State Pension's 75th anniversary in July.

Phoenix Insights said increases to the State Pension age mean people will need to work for longer or draw on other resources – such as a private pension savings or working age benefits – to bridge the gap between stopping working and receiving income from the State Pension.

Its research shows half (51%) of people expect to drop out of work before reaching their State Pension age, with physical health, mental health and age discrimination the main barriers preventing people from remaining in work.

The think tank’s modelling shows that more than a third (36%) of people are already unlikely to be saving enough to meet their financial goals for retirement. Dipping into savings early will further deplete retirement income prospects.

To support people in the years leading up to retirement and those who do not currently benefit from the State Pension system, the report recommends:

• Early access to the State Pension for those with a terminal illness: Allow early access to a weekly payment equivalent to the state pension to support adults of any age with a diagnosed terminal illness and a life expectancy of less than six months. Paid at the equivalent rate to the state pension and pro-rated depending on the individual’s National Insurance contributions, as advocated by organisations such as Marie Curie.
• Means-tested bridging benefit: A top up to Universal Credit, equivalent to Pension Credit, accessible one year before their state pension age, for those on low incomes with a work limiting health condition, or caring responsibilities.
• A co-ordinated Sustainable Work Fund: Used to engage and support employers and workers. This will create opportunities for better, healthier and more sustainable working lives for all ages, through a major boost to lifelong learning, interventions such as mid-life MOTs and workplace health and careers advice.

These changes, and other proposals in the report, could be funded by reinvesting the equivalent of 20% of the amount that the Treasury would save whenever the state pension age increases.

Patrick Thomson, head of research and policy, at Phoenix Insights, said: “The State Pension is the biggest single part of the social security system and has been the foundation for many people’s retirement income over the last 75 years. However, looking ahead, it is facing serious questions of intergenerational fairness and affordability as large numbers reach retirement in the coming decades.”

He said that increasing the State Pension age will mitigate some of the costs but he predicted that delaying access to State Pension payments alongside the under-saving crisis will create a perfect storm for worsening poverty for those unable to remain in work until their late 60s.

Mr Thomson said: “Policy interventions are needed in the years approaching State Pension age so that more people aren’t dragged into financial hardship. We also need to radically change the way that we think about work, making it more sustainable and fulfilling, with better opportunities to upskill, change careers and save for a good retirement.” 

• The report was based on Phoenix Insights research with the National Centre for Social Research. Analysis conducted on 3,075 respondents and weighted to be nationally representative. Research carried out in April.